Simple Company reported the following: sales of $10 million; profit of $1.5 million; asset intensity of 40%; and leverage of 400%. What is Simple Company's return on assets?

Question

Quizplus · Accepted Answer

Return on Assets (ROA) is calculated as Net Income divided by Total Assets. Given the profit (Net Income) of $1.5 million and an asset intensity of 40%, we first need to find the total assets. Asset intensity is the inverse of asset turnover, which is Sales divided by Total Assets. Therefore, Total Assets = Sales / Asset Intensity = $10 million / 0.4 = $25 million. Now, ROA = ($1.5 million / $25 million) * 100 = 6%.

Simple Company Reported the Following: Sales of $10 Million; Profit